The 2005 Quadrennial Defense Review: The Military Industrial Base

About the Authors

Every four years,
the Department of Defense, as required by law, conducts a review of
its forces, resources, and programs and presents the findings of
this Quadrennial Defense Review (QDR) to the President and
Congress. The QDR provides a basic strategy for addressing critical
issues like budget and acquisition priorities, emerging threats,
and Pentagon capabilities for the next 20 years. At a recent
Heritage Foundation conference, experts analyzed the role of the
military industrial base in QDR planning.

Biotechnology: A New
Field for the Military Industrial Base

Currently, the
military relies on the commercial industrial base for its
biotechnology needs, leveraging advances developed for
health-related applications. There is no established military
industrial base for biotechnology. If the military is going to take
advantage of the capabilities of biotechnology and make it a part
of military transformation, it will have to develop a relationship
with the commercial biotechnology industrial base, define
requirements, and move forward with a judicious investment
strategy. The QDR is an appropriate forum in which to address these
issues.

The QDR should
embrace the opportunities that biotechnology presents in the fields
of logistics, materials science, electronics and sensing,
bioenergetics, and biomimetics. It should consider two key
strategies:

New and
effective partnerships between the Department of Defense and the
biotechnology industry that lead to the development of new
approaches to working with the private sector, such as new business
and planning practices. The current acquisition system is not set
up to work well with biotech companies.

Expanding
military understanding of biotech efforts. Advances in biology and
biotech should be built into capabilities-based planning.

What now prevents
full development of these ideas is the lack of existing successful
industry models, as well as regulatory, legal, ethical, and
societal concerns over use of biotechnology by the military.
However, a military biotechnology industrial base (or a partnership
with the commercial industrial base) could produce capabilities
vital to the warfighter, such as sensor networks, health
monitoring, functional foods, portable power, and camouflage.

Evolving Conditions
and Industry Issues

The 2005 QDR-with
its relatively open process, consideration of the entire threat
environment, and competition for ideas-promises the possibility of
real transformation. However, while the Department of Defense is
writing its roadmap, industry needs one too. Participants discussed
evolving conditions and areas of concern to the military industrial
base and military preparedness as they relate to the Quadrennial
Defense Review.

Procurement: The procurement process is a constant concern.
It is too slow, too long, and getting worse. While the United
States gets good value for each procurement dollar, it simply takes
too long. The Joint Strike Fighter (JSF) program, for example, has
been going for 17 years is still not completion. With strong
leadership, the Department of Defense and the Quadrennial Defense
Review could improve this process.

Prime
contractors: In the 1980s, there were about 20 prime
contractors; now there are only 4 or 5. There must be some
recognition of the effect that this decline has on the supplier
base and its ramifications for innovation and profitability.
Furthermore, the Department of Defense apparently believes that the
future of innovation resides with small companies, but this is
counter to the ongoing trend-primarily mergers and acquisitions.
Large companies actively seek to acquire smaller "smart" companies,
driven by the desire to acquire technology, innovation, and markets
instead of the old desire to expand for survivability and economy
of scale. When the Department of Defense goes seeking these smaller
companies, it may find itself lagging behind the private
sector.

Domestic
economics: The Department of Defense used to be a prime driver
of research and development and was the major catalyst for many of
the technologies that we enjoy in the civilian world today.
Additionally, it was a major procurer with respect to the national
economy. This is no longer the case. In the electronics industries,
for example, many firms that used to be major suppliers to the
Department of Defense now have a much smaller relationship with the
Department, or none at all. Yet the Department of Defense
increasingly relies on the commercial sector in the areas of IT,
electronics, and communications, some segments of which find
themselves in almost a direct support role to the military. This
situation places the acquisition system in difficulty by decreasing
the Pentagon's influence over what technologies the private sector
pursues.

Globalization: Sourcing and production is now global, with
considerable implications for the industrial base. The United
States is no longer the single source of high technology, and while
"value added" capabilities still reside within our borders, even
this is changing. The United States likes to have access to
technology from foreign sources but does not want to be dependent
on it. Impediments to cooperation with allies-such as technology
transfer, third party transfers, and the concept of just
return-still exist. On the positive side, large international
defense companies, such as EADS, BAE, and Thales, are increasing
their presence in the U.S. The QDR must address the issue of global
industry partners-a reality of the 21st century-in pragmatic way,
while dealing with recurring "Buy American" legislative issues.

Politics:
Parochial decision-making in procurement policy has not changed.
When congressional appropriators make choices, based on what they
consider to be their best interests, they are making industrial
policy that affects acquisition. Unfortunately, these decisions are
not always to the country's strategic benefit. The Department of
Defense and QDR leaders must step up and try to influence this
process, despite the contentiousness of the current political
environment.

Areas of Concern

Budget:
Congress and the Administration must come to grips with macro
budget concerns. Current deficits, if they continue at along the
projected path, will affect national security. While supplemental
appropriations have been successful so far, it is not clear that
the Global War on Terror and mandatory spending programs will allow
Congress to maintain funding at the present level. A funding crunch
in the future is likely. The QDR, as a process, must help planners
think through and predict funding levels sufficient to fund
operations and maintenance, requirements, personnel, and other
priorities.

Investment:
The revolutionary technologies favored by Pentagon planners require
significant investment. Information technology, electronics,
nanotechnology, directed energy, data storage, and biotechnology
are all areas of potential leverage for the U.S. military, but they
require considerable innovation and investment in research and
development. This has important ramifications for the military
industrial base. But research accounts may continue to erode under
the pressure of competition from the private sector and other
operational requirements. In 1995, the average cost of man-year per
soldier was $60,000. In 2000, it was $150,000.

China:
China is a growing economic power the center of most of the trade
and technology discussions taking place today. Its increasing
market share in the production of electronics and other commodities
vital to the global military industrial base is a fact. Chinese
companies operate under very few of the regulatory policies that
affect American industry, and Chinese facilities and production
processes are increasingly state-of-the art. The industrial and
economic power wielded by China, and how this relates to the
country's political and military aspirations, is seen as a cause
for concern by planners, legislators, and policymakers.

The military
industrial base has not been mentioned specifically as component of
the 2005 QDR, and there is no "QDR Team" assigned to it. The
general consensus among the experts at this event is that this is a
potentially serious oversight. Despite recent increases, defense
acquisition and procurement budgets will probably not be sufficient
to maintain the military industrial base as it exists today. There
will be continued stress between those who support the legacy
systems, politically and economically, and those who support
evolving systems. The future is likely to see increased
transatlantic cooperation in development and production of defense
assets, with major mergers between U.S and foreign defense
companies. QDR requirements, whatever they turn out to be, will
somehow translate into industrial orders. For years to come, these
orders will influence the changing military industrial base.

Jack Spencer is Senior Policy
Analyst for Defense and National Security in the Kathryn and Shelby
Cullom Davis Institute for International Studies at the Heritage
Foundation. Kathy Gudgel, Research Assistant in Defense and
National Security, contributed to this piece.This paper is based on presentations given
at "The 2005 Quadrennial Defense Review: The Military Industrial
Base" held on April 20, 2005 at The Heritage
Foundation.

About the Author

Jack SpencerVice President, the Institute for Economic Freedom and Opportunity